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Edited version of private ruling

Authorisation Number: 1011610348969

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Ruling

Subject: GST and supply of research study

Question

Is the supply of research study by an Australian entity to an overseas company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as per written agreement in place?

Answer

Yes, the supply of research study by the Australian entity to the overseas company as per written agreement in place is GST-free.

Relevant facts

The Australian entity (you) is a research organisation operating in Australia and is registered for the goods and services tax (GST).

You have a written agreement with an overseas company (non-resident company) and in this agreement you will make a research study and the overseas company will provide the research funding.

In return for their funding of the research study, the overseas company is entitled to receive regular progress reports, a final written report of the study and its results from you, review rights in relation to and before you publish any information about the study and ownership of or the rights to certain intellectual property arising from the study.

The research work will be performed primarily in Australia. The outcomes will be reported by you by way of update/progress reports and final reports. These reports will be sent directly to the overseas company.

The overseas company has an office in Australia and you have advised that this office is not a party to the written agreement and is not involved in your supply of research study to the overseas company. All communications in relation to the supply are between you and the overseas company.

Detailed Reasoning

GST is payable on taxable supplies. A supply is a taxable supply under section 9-5 of the GST Act if:

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

All the requirements in section 9-5 of the GST Act need to be satisfied for the supply to be a taxable supply.

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that makes the supply of research study input taxed. The next step is to determine whether the supply is GST-free.

GST-free

Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia is GST-free.

Of particular relevance to the supply of research study to the overseas company is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where:

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done.

Not in Australia in relation to the supply

For a supply of services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done.

Where the thing supplied is a service, when the service is done refers to the period of time during which the service is performed.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is not in Australia when the thing supplied is done.

A non-resident company is in Australia if the company carries on its business or activities in Australia:

Further, a non-resident company is in Australia in relation to the supply if:

From the information received, the overseas company is a non-resident company and all communications in relation to the supply are made directly to the overseas company. Further, the Australian office is not involved with the supply and is not a party to the agreement. As such, the overseas company is not in Australia in relation to the supply of research study made to them.

The next step is to determine whether paragraphs (a) and/or (b) of Item 2 are satisfied.

Paragraph (a) of Item 2

The requirement in paragraph (a) of Item 2 is met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is physically performed on goods and when a supply is directly connected with real property.

Paragraphs 68 and 69 of GSTR 2003/7state:

… If the supply includes work physically performed on goods but that work is ancillary to some other dominant part of the supply that is not work physically performed on goods, then that supply is not characterised as a supply of work physically performed on goods. This depends on the particular facts of each supply.

For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice if the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods. The testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information.

From the information received, we consider that the requirements in paragraph (a) of Item 2 are satisfied because the dominant part of the supply of research study is a supply of information or advice and, this supply is neither a supply of work physically performed on goods nor a supply directly connected with real property in Australia.

Accordingly, the supply of research study is GST-free under paragraph (a) of Item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act.

Paragraph (b) of Item 2

Under paragraph (b) of Item 2, a supply other than goods or real property is GST-free if the non-resident acquires the services in carrying on their business and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. The supplier can check the GST registration status of an entity that they deal with by checking the Australian business register.

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reason to believe that the statement is not accurate.

Therefore, where the overseas company acquires your service in carrying on their enterprise, and is neither registered nor required to be registered for GST in Australia, your supply of research study will also be GST-free under paragraph (b) of Item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act.

Limitation - Subsection 38-190(3) of the GST Act

The scope of Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act applies if there is a supply of something, being a supply that is made to a non-resident and covered by Item 2, and the same supply is provided, or is required to be provided to another entity in Australia.

A supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example, the doing of the thing supplied) is in whole or in part, to another entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident entity) and the actual flow of the supply is to another entity.

On the basis of the facts received, subsection 38-190(3) of the GST Act is not applicable to the supply of research study as you are not required under the agreement with the overseas company to provide the supply of research study to another entity in Australia.

The supply of research study is therefore not excluded from being GST-free under subsection 38-190(3) of the GST Act.

Summary

Your supply of research study to the overseas company is GST-free under Item 2

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